Scandinavian Working Papers in Economics
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Bank of Finland Research Discussion Papers, Bank of Finland

No 34/2009:
The determinants of option-adjusted delta credit spreads: a comparative analysis of the United States, the United Kingdom and the euro area

Leonardo Becchetti (), Andrea Carpentieri () and Iftekhar Hasan ()

Abstract: We analyse the determinants of the variation of option-adjusted credit spreads (OASs) on a unique database that enlarges the traditional scope of analysis to more disaggregated indexes (combining industry, grade and maturity levels), new variables (volumes of sales and purchases of institutional investors) and a complete set of markets (besides the United States, the United Kingdom and the euro area). With our extended set of regressors we explain almost half of the variability of OASs and find evidence of a significant impact of institutional investors’ purchases and sales on corporate bond risk. We also find that US business cycle indicators significantly affect the variability of OASs in the United Kingdom and the euro area.

Keywords: option-adjusted credit spreads; delta; corporate bond risk; institutional investors; business cycle indicators; (follow links to similar papers)

JEL-Codes: E44; G12; G32; (follow links to similar papers)

78 pages, November 23, 2009

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